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GRT - Growthpoint - Audited results for the year ended 30 June 2007
Growthpoint Properties Limited
("Growthpoint" or "the company")
(Registration number 1987/004988/06)
Share code: GRT
ISIN: ZAE000037669
Audited results for the year ended 30 June 2007
14.5% distribution growth to 93,1 cents per linked unit
48% increase in property assets to over R22 billion
24.3% increase in net asset value per linked unit to 1 275 cents
Market capitalisation of R16 billion
R1,6 billion Management "Buy-in"
Condensed Consolidated Income Statement
Audited Audited
2007 2006
Note Rm Rm
Revenue excluding straight-line 2 152 1 298
lease income adjustment
Straight-line lease income 210 82
adjustment
Revenue 2 362 1 380
Property expenses (539) (351)
Net property income 1 823 1 029
Other operating expenses (120) (66)
Net property income after other 1 703 963
operating expenses
Investment income 45 34
Fair value adjustments 1 (186) (49)
Operating profit 1 562 948
Finance costs (615) (361)
Non-cash financing charges (16) (10)
Trading profit and other capital (6) -
items
Finance income 44 49
Profit before debenture interest 969 626
Debenture interest (966) (602)
Profit before taxation 3 24
Tax - capital gains tax on (2) (23)
companies
Profit after taxation 1 1
Note 1:
Fair value adjustments (186) (49)
Gross investment property fair 2 223 1 582
value adjustment
Less: straight-line lease income (210) (82)
adjustment
Net investment property fair 2 013 1 500
value adjustment
Listed property investments 7 33
Borrowings and derivatives 125 288
Long-term loan receivable 34 -
Debentures (2 365) (1 870)
Debentures are adjusted to fair
value which represents the net
asset value attributable to
debenture holders.
The adjustment consists of:
Fair value adjustments for other (2 179) (1 821)
assets and liabilities excluding
fair value adjustment on
debentures
Straight-line lease income (210) (82)
adjustment
Capital gains taxation 2 23
Non-cash financing charges 16 10
Trading profit and other capital 6 -
items
Distributable earnings retained - -
Debenture fair value adjustment (2 365) (1 870)
Calculation of distributable
earnings
Net property income after 1 703 963
operating expenses
Less: accrual of straight-line (210) (82)
lease income
Investment income 45 34
Finance costs (615) (361)
Finance income 44 49
Taxation (excluding capital - -
gains taxation)
Distributable earnings 967 603
Total distribution (967) (603)
- Debenture interest (966) (602)
- Ordinary dividend (1) (1)
Retained distributable earnings - -
Linked units Linked units
Linked units in issue at the end 1 074 126 195 778 186 044
of the year
Weighted average number of 1 030 639 648 705 248 004
linked units in issue
cents cents
Distributable earnings per 2 93,82 85,58
linked unit
Distribution per linked unit 93,10 81,30
Six months to 31 December 45,00 39,10
- Period to 31 October 30,00 -
- Period to 31 December 15,00 39,10
Six months to 30 June 48,10 42,20
Basic earnings per share 3 0,09 0,09
Headline loss per linked unit (72,23) (65,50)
Rm Rm
Basic earnings are reconciled to
headline
earnings as follows:
Profit after taxation 1 1
Add back: fair value adjustment (2 013) (1 500)
- investment property
Less: taxation applicable 302 435
thereto
Headline loss attributable to (1 710) (1 064)
shareholders
Add back: debenture interest 966 602
paid
Headline loss attributable to (744) (462)
unitholders
Note 2
The calculation of distributable earnings per linked unit is a more meaningful
calculation than the EPS calculation (refer note 3).
Note 3
The disclosure of earnings per share, while obligatory in terms of accounting
standards, is not meaningful to investors as the shares are traded as part of a
linked unit and practically all of the revenue earnings are distributed in the
form of debenture interest plus dividend in the ratio of 1 000 to 1. In
addition, headline earnings include profit on the sale of listed property
investments, fair value adjustments on long-term loans, fair value adjustments
for listed property investments, fair value adjustments for interest-bearing and
zero-coupon borrowings and debentures as well as notional interest on non-
interest bearing long-term loans, all of which do not affect distributable
earnings.
Condensed Consolidated Cash Flow Statement
Audited Audited
2007 2006
Rm Rm
Cash generated from operations 1 484 803
Investment income 45 34
Net finance costs (598) (312)
Taxation paid (22) (25)
Trading profit and other capital items (6) -
Distribution to unitholders (804) (497)
Cash flow from operating activities 99 3
Cash flow from investing activities (1 339) (1 135)
Cash flow from financing activities 1 243 1 102
Net increase/(decrease) in cash and cash 3 (30)
equivalents
Cash and cash equivalents at beginning 16 46
of the year
Cash and cash equivalents at end of the 19 16
year
Condensed Consolidated Balance Sheet
Audited Audited
2007 2006
Rm Rm
ASSETS
Fair value of investment property for 21 545 14 543
accounting purposes
Straight-line lease income accrual 628 474
Fair value of property assets 22 173 15 017
Listed property investments 11 -
Long-term loan 340 222
Derivative asset 108 114
Current assets 325 191
Receivables and other current assets 306 175
Cash and cash equivalents 19 16
Total assets 22 957 15 544
EQUITY AND LIABILITIES
Ordinary share capital 54 39
Non-current liabilities - debentures 13 646 7 943
Linked unitholders` interest 13 700 7 982
Other non-current financial liabilities 8 293 5 748
Current liabilities 964 1 814
Trade and other payables 385 182
Amount owing in respect of property - 1 251
acquisition
Current portion of non-current 53 -
liabilities
Taxation payable 5 23
Linked unitholders for interest and 521 358
dividends
Total equity and liabilities 22 957 15 544
Number of linked units in issue 1 074 126 195 778 186 044
Net asset value per linked unit (cents) 1 275 1 026
Condensed Consolidated Statement of Changes in Equity
Ordinary Total share
share capital and
capital Reserves reserves
Rm Rm Rm
Balance at 30 June 2005 33 - 33
Shares issued 6 - 6
Profit for the year - 1 1
Dividends - (1) (1)
Balance at 30 June 2006 39 - 39
Shares issued 15 - 15
Profit for the year - 1 1
Dividends - (1) (1)
Balance at 30 June 2007 54 - 54
Segmental Analysis
INCOME STATEMENT EXTRACTS
Retail Office Industrial Total
Rm Rm Rm Rm
Year ended 30 June 2007
Revenue excluding straight- 813 810 529 2 152
line lease income adjustment
Straight-line lease income 61 97 52 210
adjustment
Revenue 874 907 581 2 362
Property expenses (222) (200) (117) (539)
Net property income 652 707 464 1 823
Fair value adjustment:
- investment property 826 728 459 2 013
Year ended 30 June 2006
Revenue excluding straight- 610 585 103 1 298
line lease income adjustment
Straight-line lease income 25 58 (1) 82
adjustment
Revenue 635 643 102 1 380
Property expenses (163) (158) (30) (351)
Net property income 472 485 72 1 029
Fair value adjustment:
- investment property 819 573 108 1 500
BALANCE SHEET EXTRACTS
At 30 June 2007
Non-current assets
- Investment property
- Opening balance - 30 June 6 062 5 564 3 391 15 017
2006
- Acquisition - Paramount 1 126 1 493 876 3 495
portfolio
- Acquisitions - other 433 464 174 1 071
- Capital expenditure 122 309 102 533
- Disposals (57) (8) (101) (166)
- Reclassification - (147) 147 -
- Gross fair value adjustment 887 825 511 2 223
- Fair value of property 8 573 8 500 5 100 22 173
assets - 30 June 2007
At 30 June 2006
Non-current assets
- Investment property
- Opening balance - 30 June 4 383 4 180 556 9 119
2005
- Reclassification - (59) 59 -
- Acquisitions 751 851 2 674 4 276
- Capital expenditure 161 76 17 254
- Disposals (76) (117) (21) (214)
- Gross fair value adjustment 843 632 107 1 582
- Fair value of property 6 062 5 563 3 392 15 017
assets - 30 June 2006
Commentary
Introduction
Growthpoint Properties Limited is the largest South African listed property
company, with 419 properties valued at over R22 billion and a market
capitalisation of R16 billion at year end.
Growthpoint owns a diversified portfolio of quality retail, office and
industrial space well located in the major economic regions of South Africa.
Favourable economic conditions over this time saw demand for retail, office and
industrial space increase and vacancy levels have declined across all sectors.
Demand for physical properties has seen yields decline substantially as lower
interest rates pushed up prices.
Investors in listed property have likewise seen exceptional capital appreciation
as well as strong growth in distributions, particularly over the past two years.
Strategy
Growthpoint`s mission is to be the point of reference for listed property
investment in South Africa, offering investors a highly liquid, tradeable
instrument producing consistently growing income returns and long-term capital
appreciation.
Growthpoint will continue to pursue acquisition and development opportunities in
line with its strategic objectives. The acquisition and development of top
quality, well-located properties tenanted by blue-chip clients with long leases
and appropriately financed should ensure that the portfolio continues to deliver
sustainable earnings and substantial real returns to investors in the long term.
Growthpoint will continue to maintain, enhance and upgrade existing properties,
improving the shopping and working experience of the community and the more than
five thousand clients occupying space in the diversified portfolio.
In keeping with the terms of its debenture trust deed, Growthpoint does not
distribute capital profits. Where properties no longer meet the investment
criteria and are sold, the proceeds are reinvested or used to settle debt.
Distributions are based on core, sustainable net rental income after financing
costs and administration expenses.
Financial results of the company
The Growthpoint portfolio has continued its strong performance and has delivered
growth in distributions for the year ended 30 June 2007 of 14.5% compared to the
prior year.
The growth in distributions is based on sustainable earnings derived from
property net rental income and investment income.
The increase in the Growthpoint linked unit price from R10,70 at 30 June 2006 to
R14,85 at 30 June 2007, together with the 93,1 cents per linked unit
distribution announced for the year ended 30 June 2007, amounted to a total
return for the year of 47.5%.
Apart from normal rental escalations, the large increase in revenue and property
expenses was mainly due to the following:
* Inclusion in the current year of income from the 163 properties acquired
from Metboard Properties Limited ("Metboard"), which was not included in
the prior year;
* Inclusion from 31 December 2006 of income from the 73 properties acquired
from Paramount Property Fund Limited ("Paramount"); and
* Income from 24 properties acquired from Tresso Trading 119 (Pty) Limited,
included in the 2006 year for one month whereas 12 months were accounted
for in the current year.
The strong performance of Growthpoint`s linked unit price saw the company`s
market capitalisation increase to R16,0 billion at the end of June 2007. The
increase in other operating expenses is largely due to the increase in asset
management fees, which is a function of the increased market capitalisation and
debt following the acquisitions made over the last year and the higher prices at
which Growthpoint linked units traded in the year to 30 June 2007.
The balance sheet at 30 June 2007 reflects the acquisition of Paramount with
property assets at a fair value of R3,3 billion and corresponding debt of R1,6
billion.
Basis of accounting
The financial results have been prepared in accordance with International
Financial Reporting Standards (IFRS). The company`s accounting policies as set
out in the audited financial statements for the year ended 30 June 2006 have
been consistently applied.
In terms of current accounting standards, rental income from leases with
escalation clauses should be brought to account on a smoothed, straight-line
basis over the period of the relevant leases. Compliance with the standards
results in future rental escalations being included in the current year`s
revenue. However, as investment property is valued by discounting future
expected cash flows, the fair value adjustment for investment property is
reduced by the amount of the straight-line lease income adjustment included in
revenue, in order to avoid double counting.
Investment property comprises land and buildings held to generate rental income
over the long term. Should any properties no longer meet the company`s
investment criteria and be sold, any profits or losses will be capital in nature
and will be taxed at rates applicable to capital gains. Deferred taxation on
revaluation of investment property is off-set against the deferred taxation
asset that arises on the revaluation of the company`s issued debentures.
Vacancy levels
Property fundamentals remain strong, with vacancy levels for the whole country,
as reported by Investment Property Databank South Africa (Pty) Limited (IPD)
declining across all sectors with Industrial showing the largest decline in
vacancies.
At 30 June 2007 Growthpoint`s vacancy levels, as a % of Gross Lettable Area
(GLA) were:
Retail 2.1% (2006: 2.7%)
Office 4.2% (2006: 5.2%)
Industrial 2.0% (2006: 1.8%)
Total 2.5% (2006: 2.9%)
Paramount acquisition
On 29 September 2006, Growthpoint acquired 37,3 million Paramount linked units
for a cash consideration of approximately R244 million. On 17 October 2006
Growthpoint acquired a further 65,5 million Paramount linked units in exchange
for 45,5 million new Growthpoint linked units. As this resulted in Growthpoint
owning more than 35% of the issued shares in Paramount, an offer was extended to
all remaining Paramount linked unitholders to acquire their Paramount linked
units in exchange for cash or 1 new Growthpoint linked unit for every 1,44
Paramount linked units.
By 26 January 2007, the closing date for the offer, Growthpoint had received
acceptances from more than 90% of Paramount linked unitholders and therefore
invoked section 440K of the Companies Act in order to compulsorily acquire the
remaining Paramount linked units.
The Paramount portfolio at 31 December 2006 consisted of 73 properties made up
of 42% Retail, 39% Office and 19% Industrial. By value, 44% were located in the
Western Cape, 26% in KwaZulu Natal, 25% in Gauteng and the remaining 5% in
Pretoria, Witbank and Eastern Cape.
Acquisitions and developments
Besides the Paramount acquisition, the following further acquisitions were made:
Purchase Initial
Property price Sector yield
Rm %
Business Connexion Group ("BCX") 325,6 Office 8.5
(7 buildings)
Longbeach Mall (balance of 138,1 Retail 7.5
49.9% not previously owned)
Richard Carte Road 72,3 Industrial 9.5
226 Brakpan Road 102,0 Industrial 11.8
Ditsela 29,1 Office 10.0
Kulingile 108,0 Office 8.9
11 Adderley Street and Golden Acre 92,5 Retail 8.0
(balance of 25% not previously
owned)
Gustav Voigts (Namibia) 190,4 Retail 9.0
Total 1 058,0
During the year under review, R327,4 million was spent on new developments,
refurbishing and upgrading the property portfolio.
Major projects included:
Property Expenditure Initial yield
Rm %
Waterfall Mall Value Centre (new centre) 45,0 10.0
Sandton Close 1 (redevelopment) 55,9 11.0
Constantia Office Park (additional 81,0 11.7
buildings)
Hatfield Gardens (additional building) 29,6 9.5
Hilltop Industrial Park (additional 37,2 10.5
units)
Central Park (additional building and 27,7 11.0
upgrade)
Acquisitions and developments in progress
At 30 June 2007 Growthpoint had entered into agreements to acquire a number of
properties in various transactions totalling over R1,4 billion. In addition over
R2,3 billion of developments are in progress.
Major acquisitions in progress are: Cost Initial yield
Property Rm %
BCX - Faerie Glen (office) 53,5 8.5
Lakeside Mall (additional 20.7%) 120,4 7.5
TA Bank, Rosebank 73,0 11.5
The Estuaries, Century City (office 90,0 9.8
development for 2008)
The Estuaries, Phase 2 62,3 9.3
The District, Woodstock 260,0 8.2
Die Hoewes, Centurion 54,9 9.5
Telkom building, Centurion 45,0 9.4
Aventis 64,4 10.4
7 Sturdee Ave, Rosebank 49,5 8.8
Deloitte & Fiat 85,5 9.1
IDCS 34,5 8.3
IBM 196,2 7.8
Ogilvy, Bryanston 93,6 8.5
Growthpoint Industrial Estate (serviced 84,0 -
land)
Major developments include: Cost
Property Rm
100 Grayston (Investec) extensions 450,0
1 Sandton Drive (premier 30 000 m2 office block) 494,0
Woodmead Retail Park (new regional shopping centre) 498,0
Justine, Growthpoint Industrial Park (new building) 55,0
Constantia Office Park (additional 14 000 m2 office block) 165,0
City Mall Klerksdorp (structured parking) 47,0
Altech Autopage , Midrand (new office block) 34,9
Grand Parade (18 000 m2 offices) 146,9
Ebony (new industrial facility) 50,5
Middestad Mall (upgrade and 2 500 m2 extensions) 79,5
Pick n Pay, Claremont (complete redevelopment, retail and 319,2
office)
Disposals
In line with Growthpoint`s strategy to dispose of properties which no longer
meet its investment criteria, 17 properties were disposed of for R166,5 million
at a profit of R51,8 million on cost.
Liquidity and tradeability
Growthpoint`s linked units continue to enjoy high levels of liquidity and
tradeability. During the year ended 30 June 2007, R5,9 billion of Growthpoint
linked units traded on the JSE Securities Exchange, representing 47.6% of the
weighted average linked units in issue.
Borrowings and cash balances
At 30 June 2007, the fair value of interest-bearing debt and net derivatives
amounted to R8 103 million. The fair value of zero-coupon loans and debentures
amounted to R135 million.
At 30 June 2007, the loan to value ratio, determined by dividing the total fair
value of all debt (excluding debentures) by the sum of investment property and
listed property investments was 37.4%.
94% of interest-bearing debt was fixed at a weighted average rate of 9.4% for a
weighted average of 9,2 years at 30 June 2007.
Share and debenture capital
The authorised share capital is R75 000 000 divided into one and a half billion
ordinary shares of five cents each. Each ordinary share is linked to ten
variable rate debentures of 250 cents each. The ordinary shares and debentures
trade as linked units on the JSE.
In terms of the debenture trust deed, the interest payable on the debenture
component of the linked unit is always 1 000 times greater than the dividend
payable per ordinary share.
The following new linked units were issued during the year:
* 121 658 512 linked units to acquire the balance of the linked units in
Metboard;
* 147 281 639 linked units to finance the acquisition of Paramount;
* 22 000 000 to partly finance the BCX acquisition which were placed with
Phatsima Properties (Pty) Limited ("Phatsima") in terms of Growthpoint`s
second BEE transaction; and
* 5 000 000 to purchase the remaining 25% of 11 Adderley Street and Golden
Acre.
Management "Buy-in"
Growthpoint has entered into an acquisition agreement with Investec Property
Group ("IPG") and the BEE partners, being the AMU Trust and Phatsima, in terms
of which Growthpoint Management Services (Pty) Limited, a subsidiary of
Growthpoint, will acquire the Property Services Businesses for a total purchase
consideration of R1,6 billion. The Property Services Businesses include the
property fund management business and the property administration business.
Growthpoint`s rationale for entering into the proposed acquisition includes the
following:
* perceived conflicts of interest arising from the external management model
will be eliminated;
* the transaction will be earnings enhancing for Growthpoint in the longer
term;
* international and local investors tend to favour internally managed
property funds over externally managed property funds; and
* removal of the asset management fee will allow Growthpoint to be more
competitive in pricing new acquisitions.
Growthpoint has also proposed a Staff Incentive Scheme as an incentive to retain
key executives, management and staff and to align their interests with those of
Growthpoint`s linked unitholders.
Results of General Meeting
Growthpoint linked unitholders are referred to the circular posted to them dated
Monday, 6 August 2007 regarding the acquisition by Growthpoint or its nominee of
the Property Services Businesses of Investec Property Group and the adoption of
the Proposed Executive and Staff Incentive Scheme.
At a meeting of Growthpoint linked unitholders held on 21 August 2007, the
resolutions necessary to give effect to the above acquisition and Staff
Incentive Scheme were approved by a majority of more than 90% of linked
unitholders eligible to vote on the respective resolutions.
The acquisition will be paid for by the issue of 98 300 000 new linked units. A
further 8 500 000 linked units will be issued in terms of an executive and staff
incentive scheme.
Following approval of the acquisition by the Competition Commission last week,
the last remaining condition to be fulfilled is approval by the Competition
Tribunal, which is expected before the end of August 2007 after which the
transaction will become unconditional.
Prospects
The 14.5% growth in distributions experienced for the year ended 30 June 2007
was an exceptional performance achieved on the back of refinancing a substantial
portion of the company`s debt through securitisation and letting of previously
vacant space.
Vacancy levels are now at such low levels that there is not much opportunity to
reduce them further. Likewise there is limited scope to achieve further savings
on debt refinancing.
The maturity profile of the debt structure and the fact that only 6% of the debt
is currently floating, largely protects the company from the adverse effects of
recent interest rate increases and any further increases that might occur in the
next year.
Borrowing costs on new debt will be higher and the acquisition of quality
properties at initial yields which are lower than borrowing costs will result in
these transactions being slightly dilutionary in the first year. Certain of the
new developments will also not be fully occupied on the dates of final
completion and may take a number of months to be fully occupied. This again will
be dilutive in the first year of these properties trading.
Nevertheless, the fundamentals in respect of demand for space and availability
of space across all sectors remain strong, as witnessed by the declining vacancy
levels.
The high and rapidly increasing costs of building new properties as a result of
the huge infrastructure expenditure in progress and planned for the next few
years, will also act as a constraint on new developments being brought to the
market.
The Growthpoint board anticipates that, subject to market conditions remaining
stable, Growthpoint`s distributions for the year ending 30 June 2008, should
grow at a rate substantially in excess of the current CPIX inflation rate.
This profit forecast has not been reviewed or reported on by Growthpoint`s
external auditors.
Dividend and interest payment
Notice is hereby given of final dividend declaration number 42 of 0,0481 cents
and debenture interest payment number 42 of 48,0519 cents per linked unit
totalling 48,1 cents per linked unit for the six months ended 30 June 2007,
bringing the total distribution for the year ended 30 June 2007 to 93,1 cents
per linked unit.
Timetable for final distribution: 2007
Last day to trade "cum" the final distribution Friday, 7 September
Linked units commence trading "ex" the final Monday, 10 September
distribution
Record date to participate in the final Friday, 14 September
distribution
Payment date of the final distribution Monday, 17 September
No dematerialisation or rematerialisation of Growthpoint linked unit
certificates may take place between Monday, 10 September 2007 and Friday, 14
September 2007, both days inclusive.
Audited financial statements
The Group`s annual financial statements have been audited by the independent
auditors, KPMG Inc., and their unqualified audit report is available for
inspection at the company`s registered office.
By order of the board
Growthpoint Properties Limited
21 August 2007
Directors
S Hackner (Chairman), JF Marais (Deputy chairman), LN Sasse* (Chief Executive
Officer), MG Diliza, PH Fechter, JC Hayward, HS Herman, SR Leon, HSP Mashaba, R
Moonsamy, B Ngcuka, CG Steyn, JHN Strydom, FJ Visser * Executive
Registered office
100 Grayston Drive, Sandown, Sandton, 2196
PO Box 78949, Sandton, 2146
Transfer secretary:
Computershare Investor Services 2004 (Pty) Limited
(Registration number 1958/003546/06)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor
Investec Bank Limited
100 Grayston Drive, Sandown, Sandton, 2196
PO Box 78949, Sandton, 2146
Date: 22/08/2007 09:47:04 Supplied by www.sharenet.co.za
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